New Economic Turbulence: What it Means for IT

According to a story from Associated Press, the number of people seeking unemployment benefits fell below 400,000 last week for the first time in four months, “a sign that the job market may be improving slowly after a recent slump.”

Applications for unemployment aid dropped by 7,000 to a seasonally adjusted 395,000, the Labor Department said Thursday. Applications had been above 400,000 for the previous 17 weeks. The four-week average fell to 405,000, its sixth straight decline and the lowest level since mid-April. That suggests layoffs have eased.

Since the stock market just tanked by over 500 points yesterday (Dow) – still reeling from the S&P downgrade of U.S. debt and bad economic news from Europe – such news is indeed welcome, but when one examines it more closely it becomes obvious that we are presently grasping at economic straws. For our own industry, this could mean more of the same – cutbacks in IT expenditures and a mind-numbing emphasis on “doing more with less.”

The AP article quotes Paul Dales, senior U.S. economist at Capital Economics, saying that the decline shows “the job market is at least not getting worse.” He adds, however, that “it tells us nothing about hiring, which the market turmoil of recent weeks will not have helped.” Dales also points to the 16 percent decline in the Dow Jones industrial average since July 21.

With at least some economists now talking about a “double dip” recession, the outlook for increased spending, much less increased IT spending, looks dim indeed. According to AP, many employers pulled back on hiring after signs emerged that the economy had weakened from last year. Add to that our industry's penchant to be cautious about spending on technology—especially new tech initiatives that don’t deliver a speedy return on investment—and it is not difficult to imagine insurers remaining content holding the line on IT spending, if not frightened into reducing expenditures.

When the best thing we can pull out of today’s headlines is that things are at least not getting worse, we have to wonder what further turmoil in the financial markets will do to insurer bottom lines and operating budgets. Insurers depend on their investment portfolios for a good chunk of profit, and if the returns are negative, the outlook for companies’ growth and spending will also be negative. The economic picture might not be worse today, but it could be much worse tomorrow—then again, maybe not. When the economic indicators are not giving a clear picture, the tendency of our industry is to tread water and wait for someone else to take action so that we can accurately gauge the economic weather forecast.

My sense is that we are in for a wild rollercoaster ride. Buckle those seat belts and hang on tight.